PETALING JAYA: Axiata Group Bhd
continues to be favoured for its plans to deleverage and strengthen its balance sheet, its growth prospects in digital telecommunications companies and tower assets in emerging markets, as well as strong asset monetisation potential for its digital businesses.
Kenanga Research, in a report to clients, highlighted that the group’s PT XL Axiata Tbk (XL Axiata) recently reported results that met expectations, driven by strong subscriber base growth and resilient average revenue per user (Arpu) despite competitive pressures.
Additionally, earnings before interest, taxes, depreciation and amortisation surged as XL Axiata harnessed technology, including artificial intelligence, to optimise distribution and network costs.
That said, the research house noted that lingering headwinds remain.
Mobile competition has been intense since February 2024, with Telkomsel maintaining low prices nationwide for its Lite prepaid starter packs and top-up vouchers.
Nationwide proliferation of illegal WiFi offloading services continues to add to the competitive pressures.
“These unlicensed small Internet service providers resell Internet bandwidth purchased from licensed providers (including XL Axiata), and distribute it locally via unauthorised outdoor Wi-Fi access points or local area network cables,” the research house said.
Despite implementing targeted prepaid tariff hikes in select regions since September 2024, Arpu remained sequentially stable in the fourth quarter, it said.
This was attributed to weaker consumer purchasing power, which resulted in lower data usage and traffic volumes.
Looking ahead, XL Axiata intends to continue its strategy of localised, targeted price hikes, with the hope that competitors will follow suit to stabilise market-wide Arpus, Kenanga Research said.
It said XL Axiata is weighing participation in the unexpected 1.4GHz spectrum auction, given that its use is restricted to fixed wireless access instead of mobile services.
XL Axiata also has not ruled out the possibility of relinquishing certain blocks of its newly acquired SmartFren spectrum following the completion of the latter’s merger with XL Axiata (targeted for the second half of 2025), it added.
XL Axiata did not provide earnings guidance for the current financial year due to uncertainties surrounding the impending merger. As such, Kenanga Research kept its “outperform” call on Axiata.
“We also maintain our sum-of-parts target price of RM2.60 a share. There is no adjustment to our target price based on environmental, social and governance, given a three-star rating as appraised by us.” At the close yesterday, Axiata shares were unchanged at RM2.21.
Risks to the research house’s call include potential earnings setback from Smart Fren in Indonesia due to its pending acquisition, gestational earnings and cashflow drag from Link Net’s aggressive fibre home pass expansion, and the capital expenditure upcycle associated with the looming implementation of 5G in Indonesia.
